The fragmented Web3 world has at least three types of RWA.

Written by: Liu Honglin

Recently, Lawyer Honglin and his friends were having a conversation, and as always, the topic inevitably circled around Web3. Someone asked me if I had been working on RWA lately. As soon as I heard those three letters, I didn't dare to respond immediately and first asked, "Which kind of RWA are you referring to?"

It's not that I want to create suspense, but there are too many people in the industry talking about "RWA" now, and each person's understanding of its meaning is quite different. You say RWA is about issuing tokens, he says it's about creating concepts for PR, and others say it's about pre-selling or crowdfunding digital goods. If you express opinions without clarifying, the subsequent conversation can easily offend people, and the friendship boat can capsize just like that, and the lawyer fees that could have been collected are completely gone.

Today, let's have a serious discussion about the RWA projects currently available on the market as known by Honglin Law Firm, which can be mainly divided into three types of play. Each of them claims to be "on-chain real-world assets," but the underlying logic, legal risks, and business purposes are completely different.

The first gameplay: Asset on-chain + Financial compliance, is the "regular army" of the DeFi world.

The core logic of this type of RWA can actually be summarized in one sentence: turning traditional financial assets into programmable on-chain tokens.

For example, the short-term government bonds that you originally needed to open an account at traditional financial institutions and submit a bunch of KYC documents to purchase can now be directly bought as tokenized T-Bill notes through on-chain platforms like Swarm, Ondo, and Matrixdock. These assets are backed by real government bonds, loans, notes, or fund shares, held by custodians, and issued as RWA tokens via blockchain, allowing users to use them in DeFi protocols, such as for staking, lending, or yield aggregation.

This type of RWA is called a "regular army" because the operations behind it must meet at least three of the following conditions:

First, the underlying assets exist in reality and are legally custodied by financial institutions off-chain;

Second, the token issuance process is compliant and transparent, and typically needs to meet financial regulatory requirements such as those from the US SEC, Singapore MAS, and EU MiCA.

Thirdly, the entry threshold for investors is relatively high, and not just anyone can buy in; it is often accompanied by a whitelist system or accredited investor restrictions.

The biggest challenge for this type of project is the high regulatory costs, complex operational processes, and extremely high compliance qualification requirements for the team. It is not something you can launch just because you want to. But the benefits are also very clear: transparent use of funds, real assets, and controllable returns, making it suitable for cautious investors who want to participate in on-chain finance without taking excessive risks.

Currently, institutions such as Circle, Franklin Templeton, and Securitize are all laying out plans in this direction. For those looking to move Web2 financial traffic onto the blockchain, this is the most certain RWA path.

The second gameplay: Capital market's "Chain Reform 2.0", telling stories is more important than making products.

Let’s talk about the second type, which also looks quite "real", but the underlying aspect is not "assets", but rather "market value management". This is the typical Hong Kong method: listed companies utilize a series of "RWA press releases" to tell a story about blockchain empowering the real economy, attracting the market to speculate on the stock price.

Many people should have encountered similar tactics: a Hong Kong stock company, whose main business is about to extinguish, suddenly announces its entry into Web3, releasing a bunch of news stating that it has signed a digital asset strategic cooperation agreement with a certain platform, planning to "tokenize" the projects or assets under the company on-chain, and will globally allocate through the RWA model in the future. When you check the white paper, it is filled with fantastical nonsense, dozens of press releases have been issued, and the photos are beautifully taken, with media coverage overwhelming.

Why do this? Because such operations usually do not serve the on-chain ecosystem, but rather create hype for the capital market. By telling the RWA story to boost valuation, securing shareholders, and seeking financing, the essence is "to package traditional assets with blockchain and then leverage the capital market for arbitrage." Some companies have even not issued Tokens at all, simply changed the color of their official website, launched a page, and then started claiming to be a "benchmark enterprise for Web3 transformation."

Strictly speaking, these types of RWA projects do not truly have assets on-chain, nor do they have a design for token holder rights. For project parties, their task is more about aligning with the rhythm of capital operations to tell a "digital" future, rather than achieving digitalization itself. For ordinary investors, these types of projects generally do not participate in on-chain circulation, have no tradable tokens, and the likely outcome is: you think you are investing in Web3, but in fact, you are buying a junk stock.

Third type of gameplay: Mainland limited "Token + Pre-sale" option, with the highest legal risk.

The last type of gameplay to mention is particularly "enthusiastic" in the Greater Bay Area, especially around Shenzhen / Fujian. In Web3 startup groups, technology finance discussion groups, and investment promotion meetings, you can often hear narratives like this:

Our project is an RWA project, using tokens to anchor actual commodities such as red wine, white wine, green tea, property income rights, and machinery rental rights... When users buy tokens, they are essentially locking in future profits in advance.

It sounds a lot like a combination of NFT + RWA, but it is actually an old story of "crowdfunding + presale" dressed in the guise of blockchain. Common tricks in such projects include:

There is no compliant custody mechanism, and the authenticity of assets relies on words.

Tokens are directly accessible to individual users without investment thresholds.

Promising high returns, casually saying "double in six months" and "it's not a dream to increase the Token tenfold after listing";

The project documents are rough, mostly consisting of offline PPT and PDF files, lacking on-chain data and code audits.

More importantly, these types of projects mostly constitute illegal absorption of public deposits or disguised fundraising. Even if the underlying assets genuinely exist, if the tokens are tradable, promise returns, and are sold to unspecified members of the public, they violate the red line of illegal fundraising as per mainland China's criminal law. Not to mention that some project parties simply use RWA to commit fraud.

In recent years, law enforcement trends indicate that public security agencies, market supervision bureaus, and financial regulatory bureaus have begun to closely monitor projects that brand themselves with terms like "blockchain," "digital goods," and "RWA innovation." So, don’t be fooled by those in your circle sharing these projects claiming "this is RWA+ new productive forces"; if you step into it, you might find yourself involved in illegal fundraising.

So which type of RWA are you referring to?

Looking at RWA from today's perspective, the concept has completely become "polysemous". Some are engaged in the tokenization of real financial assets, some are harvesting from the capital markets, while others are simply playing a game of passing the parcel.

The most ironic thing is that Lawyer Honglin often encounters these three groups of people in the same situation, and surprisingly, they can still support each other and team up for roadshows. The result is that the RWA circle appears very lively, but in reality, it is chaotic internally and has a fragmented understanding.

All of this is thanks to the "RWA consultants" in the market. They help clients come up with a Token plan, run the investment promotion process, connect with government resources, and organize attendance at exhibitions, everything is covered. For those friends exploring financial innovation, as a lawyer who particularly hopes for the positive and compliant development of the industry, Lawyer Honglin has a few small suggestions. I hope everyone at least asks these four questions when dealing with RWA:

First, are your assets real, custodial, and auditable?

Secondly, does your Token design circumvent the attributes of securitization?

Third, is your target audience qualified investors or the general public?

Fourth, do you have sufficient legal opinions and regulatory response plans?

If these four deep-seated questions cannot be answered directly, it is advisable not to casually mention "RWA," let alone use it as a title for financial innovation.

We need the concept of RWA and hope it can be implemented. However, what we need more is for someone to navigate this path clearly, legally, and sustainably, rather than stumbling into regulatory pitfalls and dragging your clients down with you. The consulting fees benefit the service providers, but the result buries the principal.

So, when the RWA expert around you talks about poetry and the distant places, please ask them to confirm:

Which type of RWA are you referring to?